Section 67 of the Act has made provision for valuation of taxableservice for charging service tax.
According to Section 67(1)(a) of the Act where there is a monetary consideration paid to
provide taxableservice, the assessable value for levy of service tax is ‘gross amount’ charged by the
Service provider for thetaxable service provided. Sub-section (2) of the said section has made provision
to include the amount ofservice tax to the gross valuie of consideration where taxable service provided is
inclusive of service tax. The term ‘consideration’ for the valuation of taxable service is defined by
explanation appearing under Section 67 meaning that consideration includes any amount that is payable
for thetaxable service provided or to be provided.
The liability of the appellant arose under the Act in terms of Section 66A of the Act as recipient of service
of Engineering Consultancy from the Consultant abroad. Rule 7 (1) of the Service tax(determination
of value) Rules, 2006 which came into force with effect from 19.4.2006 has made provision in respect of
services covered by Section 66A of the Act. According to this Rule, measure of value for taxation of
service covered by that Section shall be such amount as is equal to the actual consideration charged for
the services provided or to be provided.
Although the Show Cause Notice dated 19.11.2002 refers to para 5.1 at page 19 (Appendix 2 Terms and
conditions) of the Agreement and a copy thereof was enclosed to the said notice, that paper was not
available in the paper book filed by the appellant. The show cause notice indicates that on perusal of
the agreement entered into between the assessee and M/s. Prodrive Automation Technology (Europe)
Ltd
(one
of
the
service
providers
abroad)
it
appears
that
the
price
set
out
in
the
Consultancy Agreement as was examined by notice issuing authority noticed that to be net of all duties,
taxes and other Government charges which, where applicable were payable in addition to the price.
Accordingly, Revenue held that income deducted at source formed part of gross amount of consideration
paid to foreign consultant. It appears that there were 22 service providers as per Annexure to Show
Cause Notice appearing at page 58 to 61 of the Paper Book filed by the appellant. But
no agreement copy was available on record or Paper Book. There was no pleading on material facts by
the appellant as to how the facts in issue suggest and support defence of appellant that income
tax deducted at source shall not form part of the gross amount of taxable service received when Rule 7(1)
of Service Tax (Determination of Value) Rules, 2006 provides that actual consideration charged for the
service provided or to be provided shall be assessable value in respect of services covered by Section
66A of the Act. Therefore, the expression what is ‘actual consideration charged for service provided or to
be provided’ shall depend on the facts and circumstances of each case. Further, in terms of Section 66A
of the Act the service covered by that section is treated as if the recipient had himself provided the service
in India. Thus by such legal fiction the consideration inclusive of income tax deducted at source shall be
assessable value for the purpose of the Act in the hands of the service recipient. Since the Show Cause
Notice states that the agreement with M/s. Prodirve Automation Technology (Europe) Ltd. in terms of
para 5.1 at page 19 (Appendix 2 Terms and Conditions) of the agreement speaks of the price of contract
payable was net of taxes and taxes if any payable in addition to the price of contract was payable by the
payer thereon as price of the contract and such factual aspect remaining unrebutted by appellant clearly
establishes that tax payable in India was to form part of contract price. Thus consideration charged for the
service provided shall include income taxdeducted at source as per terms of contract and is in accord
with Section 66A read with Rule 7(1) of the Service Tax (Determination of Value) Rules 2006 for the
reason that net price of contract agreed to be paid to foreign consultant was to include income deducted
at source thereon to be price also. Thus the tax demand on the assessable value comprising the
consideration inclusive of income tax deducted at source relating to the period (9.4.2006 to September
2007) which was agreed to be price of the contract sustains.
CESTAT, CHENNAI BENCH
T.V.S. Motor Company Ltd.
v.
Commissioner of Central Excise, Chennai – III
FINAL ORDER NO. 652 OF 2012
JUNE 13, 2012
ORDER
D.N. Panda, Judicial Member – Pursuant to Miscellaneous Order No.258/2011 passed by the Bench on
6.6.2011 against Revenue’s application dated 30.11.2009 for early hearing, this matter came up for
hearing today after 3 (Three) years of passing Stay order vide No.411/2009 dt. 18.5.2009 granting full
waiver of predeposit to the appellant against service tax demand of Rs. 1,65,53,563/- followed by levy of
equal amount of penalty imposed under Section 78 of Finance Act, 1994 (hereinafter referred to as ‘the
Act’) and interest on the said service taxdemanded.
2. None present for Appellant even though the matter was repeatedly called and stay order as well as
Miscellaneous order aforesaid disclosed name of Shri K.S. Venkatagiri and Shri V. Panchanathan learned
Counsels respectively in the case.
3. An application addressed to the Assistant Registrar of Tribunal and signed by an unnamed person for
Lakshmikumaran and Sridhanan was filed in Court today and none was found to be present to state
reasons of default of Appellant or its Authorized Representative. The application stated that the matter is
listed today for final hearing at serial number 37 and Shri K.S. Venkatagiri, Advocate who is authorized to
appear in this matter is unable to appear due to his personal reasons. Prayer was made therein to
adjourn to a short date after two weeks.
4. The application aforesaid not being signed naming the signatory, an enquiry was made from record to
ascertain whether any Vakalatnama of Sri K.S. Venkatagiri is existing on record. But on thorough scrutiny
of record containing 8 pages of order sheets and 278 pages appeal memo and other papers (in appeal
folder I) no vakalatnama was found on record. The Court Master accordingly noted as under:
‘No vakalatnma has been filed by any one in this case. Shri K.S. Venkatagiri, Advocate who sought for
adjournment has also not filed vakalat.’
5. Record further revealed that although early hearing application of Revenue was allowed on 6.6.2011,
for hearing the matter on 11.8.2011, due to no Benches available, the matter was adjourned from time to
time on 3 (three) occasions and finally came up to Board today. It is also apparent from record that the
adjournments were noted under some signatures.
6. Law is laid down by Apex Court in para 21 of the judgment in the case of Uday Sankar Triyarv. Ram
Kalesawar Prasad Singh AIR 2006 SC 269 with regard to filing up proper Vakalatnama in a proceeding
before Courts which reads as under:
’21. We may at this juncture digress and express our concern in regard to the manner in which defective
Vakalatnamas are routinely filed in courts. Vakalatnama, a species of Power of Attorney, is an important
document, which enables and authorizes the pleader appearing for a litigant to do several acts as an
Agent, which are binding on the litigant who is the principal. It is a document which creates the special
relationship between the lawyer and the client. It regulates and governs the extent of delegation of
authority to the pleader and the terms and conditions governing such delegation. It should, therefore, be
properly filled/attested/accepted with care and caution. Obtaining the signature of the litigant on blank
Vakalatnamas and filling them subsequently should be avoided. We may take judicial notice of the
following defects routinely found in Vakalatnamas filed in courts :
(a) Failure to mention the name/s of the person/s executing the Vakalatnama, and leaving the relevant
column blank;
(b) Failure to disclose the name, designation or authority of the person executing the Vakalatnama on
behalf of the grantor (where the Vakalatnama is signed on behalf of a company, society or body) by either
affixing a seal or by mentioning the name and designation below the signature of the executant (and
failure to annex a copy of such authority with the Vakalatnama).
(c) Failure on the part of the pleader in whose favour the Vakalatnama is executed, to sign it in token of
its acceptance.
(d) Failure to identify the person executing the Vakalatnama or failure to certify that the pleader has
satisfied himself about the due execution of the Vakalatnama.
(e) Failure to mention the address of the pleader for purpose of service (in particular in cases of
outstation counsel).
(f) Where the Vakalatnama is executed by someone for self and on behalf of someone else, failure to
mention the fact that it is being so executed. For example, when a father and the minor children are
parties, invariably there is a single signature of the father alone in the Vakalatnama without any
endorsement/statement that the signature is for ‘self and as guardian of his minor children’. Similarly,
where a firm and its partner, or a company and its Director, or a Trust and its trustee, or an organisation
and its office bearer, execute a Vakalatnama, invariably there will be only one signature without even an
endorsement that the signature is both in his/her personal capacity and as the person authorized to sign
on behalf of the corporate body/firm/society /organisation.
(g) Where the Vakalatnama is executed by a power-of-attorney holder of a party, failure to disclose that it
is being executed by an Attorney-holder and failure to annex a copy of the power of attorney;
(h) Where several persons sign a single vakalatnama, failure to affix the signatures seriatim, without
mentioning their serial numbers or names in brackets. (Many a time it is not possible to know who have
signed the Vakalatnama where the signatures are illegible scrawls);
(i) Pleaders engaged by a client, in turn, executing vakalatnamas in favour of other pleaders for
appearing in the same matter or for filing an appeal or revision. (It is not uncommon in some areas for
mofussil lawyers to obtain signature of a litigant on a vakalatnama and come to the seat of the High
Court, and engage a pleader for appearance in a higher court and execute a Vakalatnama in favour of
such pleader).
We have referred to the above routine defects, as Registries/Offices do not verify the Vakalatnamas with
the care and caution they deserve. Such failure many a time leads to avoidable complications at later
stages, as in the present case. The need to issue appropriate instructions to the Registries/Offices to
properly check and verify the Vakalatnamas filed requires emphasis. Be that as it may.’ [Emphasis
supplied]
7. Following aforesaid rulings of Apex Court, Hon’ble High Court of Delhi disposing a writ petition
W.P.No.2651 of 2009 on 8.10.2009 in the case of Deepak Khosla v. Union of Indiadirected as under:
’13. We direct that henceforth while scrutinizing the vakalatnamas filed, be it in the Registry of this Court,
the Subordinate Courts in Delhi or the Tribunals, Authorities and Foras in Delhi, failure/defect in the
vakalatnamas, noted in sub-paras ‘a’ to ‘e’ of Para 21 of the decision of the Supreme Court in Uday
Shankar’s case (supra), shall be treated as a deficiency in the execution of the vakalatnamas making
liable the said vakalatnama to be returned Further, in the situation contemplated by sub-paras ‘f’ to ‘i’ of
Para 21 of the decision in Uday Shankar’scase (supra), vakalatnamas not executed in the manner
indicated in the said sub paras shall also be treated as a deficiency in the execution of the vakalatnama,
making liable said vakalatnama to be returned.
14.? We are passing the directions in public interest for the reason even we have come across
vakalatnamas which are filed in a most lackadaisical manner. Many a times, precious judicial time is lost
in determining whether a proper representation is being made under a proper authority’. [Emphasis
supplied]
The Hon’ble Court further directed as under;
’16. The Registrar General of this Court is directed to make available a copy of this order to the Registry
of this Court and to forward a copy thereof to all the District Judges in Delhi with a direction that strict
compliance should be made with the letter and spirit of the law and our directions pertaining to execution
of vakalatnamas. Similarly, to the Registrars of the Tribunals and Foras functioning in Delhi, a copy of this
order may be sent for compliance.’ [Emphasis supplied]
8. It is surprising that in this case, Advocates from the cited law firm have appeared earlier and have
obtained waiver of pre-deposit and stay without there being any vakalatnama in their favour. In the
absence of a valid vakalatnama, they can neither be allowed to represent the appellants nor any
adjournment request from them can be entertained. Hence, the adjournment request is declined.
9. Considering that the appeal is already 3 years old and prayer of Revenue was to expeditiously dispose
the appeal due to blockage of crores of rupees of tax and penalty involved in the appeal as well as
Appellant’s knowledge of hearing granted by the Miscellaneous order aforesaid, the matter was taken up
for hearing with assistance of Representative for Revenue.
10. Heard Revenue.
11. Shri V.V. Hariharan, ld. Commissioner (AR) for Revenue submitted that for the period March 2004 to
September 2007, the Appellant was recipient of technical consultancy and project consultancy services
from service providers abroad having no place of business in India and such service falls under
Consultancy Engineering Service. The service so received being taxable service under the Act, the
recipient was liable to pay service tax in terms of Section 66A of the Act read with Rule 2(1)(d)(v) of the
Service Tax Rules, 1994. Admittedly the appellant paid service tax on the reduced value of such taxable
service without including the income tax deducted at source under Income tax Law to the consultancy
fees paid to foreign consultant. That resulted in short payment of service tax for which adjudication was
made and that resulted in proper demand by adjudication order. It was categorically submitted by
Revenue that there was difference between the value paid to foreign service provider and value disclosed
in the service tax return giving rise to understatement of gross amount resulting in short payment of
service tax. Tax deducted at source under income tax law was not included in gross payment. Therefore,
adjudication order which levied service tax on the gross value of taxable service was correct and
invocation of proviso to Section 73(1) of the Act was justified for which that does not call for interference
in the present appeal. According tax, interest and penalty levied in adjudication should be upheld.
12. Examined the adjudication order thoroughly in absence of Appellant.
13. Record reveals that Learned Adjudicating Authority examined the Service tax Returns of the appellant
for the admitted period i.e. March 2004 to September 2007 and considered pleadings of the appellant to
complete adjudication to the best of his judgment when there was no proper disclosure of gross amount
in the return. He confirmed adjudication for above period during which technical consultancy and project
consultancy services were availed by appellant from abroad and nature of service remained undisputed.
14. One of the grounds of present appeal of appellant is that services rendered outside India were not
liable to service tax prior to 18.4.2006 in view of no provision in that regard existed to realize service tax
from service recipient. There is no difference to this proposition when there was no law to tax the
impugned service received from abroad prior to 18.4.2006. Section 66A was incorporated into the statute
book with effect from 18.4.2006 to tax the taxable services provided by foreign service providers having
no permanent address or usual place of residence in India. The service so provided made recipients of
the service in India who have their place of business or fixed establishment or permanent address or
usual place of residence is in India, liable to pay the service tax as if such service is provided by the
recipients in India. Also Rule 2(i)(d)(iv) of Service tax Rules, 1994 made provision for recovery of service
tax from such recipients. Thus the value of service received by the appellant prior to 18.4.2006 shall not
be liable to tax and adjudication order to such extent shall get modified following the decision of Apex
Court in Union of India v. Indian National Shipowners Association [2010] 24 STT 366 (SC) where the
decision of Hon’ble High Court of Bombay in Indian National Shipowners Association v. Union of
India [2009] 18 STT 212 (Bom.) holding no liability arises against assessee was merged.
15. The crucial ground of appeal which caused anxiety to Revenue is valuation of taxable service. While
appellant claimed that assessable value of Consultancy Engineering service provided by the foreign
consultant shall be exclusive of income tax deducted at source under the Income tax law for levy of
service tax if there shall be levy at all, Revenue claims that gross amount to be exigible to service tax
shall be before deduction of income tax at source therefrom to tax. Appellant’s further claim was that as
per contract it was obligation of appellant to make payment to the service provider the engineering
consultancy fees net of tax for which the amount actually remitted to the service provider shall be basis of
levy.
16. Section 67 of the Act has made provision for valuation of taxable service for charging service tax.
According to Section 67(1)(a) of the Act where there is a monetary consideration paid to provide taxable
service, the assessable value for levy of service tax is ‘gross amount’ charged by the Service provider for
the taxable service provided. Sub-section (2) of the said section has made provision to include the
amount of service tax to the gross valuie of consideration where taxable service provided is inclusive of
service tax. The term ‘consideration’ for the valuation of taxable service is defined by explanation
appearing under Section 67 meaning that consideration includes any amount that is payable for the
taxable service provided or to be provided.
17. The liability of the appellant arose under the Act in terms of Section 66A of the Act as recipient of
service of Engineering Consultancy from the Consultant abroad. Rule 7 (1) of the Service tax
(determination of value) Rules, 2006 which came into force with effect from 19.4.2006 has made
provision in respect of services covered by Section 66A of the Act. According to this Rule, measure of
value for taxation of service covered by that Section shall be such amount as is equal to the actual
consideration charged for the services provided or to be provided.
18. Although the Show Cause Notice dated 19.11.2002 refers to para 5.1 at page 19 (Appendix 2 Terms
and conditions) of the Agreement and a copy thereof was enclosed to the said notice, that paper was not
available in the paper book filed by the appellant. The show cause notice indicates that on perusal of the
agreement entered into between the assessee and M/s. Prodrive Automation Technology (Europe) Ltd
(one of the service providers abroad) it appears that the price set out in the Consultancy Agreement as
was examined by notice issuing authority noticed that to be net of all duties, taxes and other Government
charges which, where applicable were payable in addition to the price. Accordingly, Revenue held that
income deducted at source formed part of gross amount of consideration paid to foreign consultant. It
appears that there were 22 service providers as per Annexure to Show Cause Notice appearing at page
58 to 61 of the Paper Book filed by the appellant. But no agreement copy was available on record or
Paper Book. There was no pleading on material facts by the appellant as to how the facts in issue
suggest and support defence of appellant that income tax deducted at source shall not form part of the
gross amount of taxable service received when Rule 7(1) of Service Tax (Determination of Value) Rules,
2006 provides that actual consideration charged for the service provided or to be provided shall be
assessable value in respect of services covered by Section 66A of the Act. Therefore, the expression
what is ‘actual consideration charged for service provided or to be provided’ shall depend on the facts and
circumstances of each case. Further, in terms of Section 66A of the Act the service covered by that
section is treated as if the recipient had himself provided the service in India. Thus by such legal fiction
the consideration inclusive of income tax deducted at source shall be assessable value for the purpose of
the Act in the hands of the service recipient. Since the Show Cause Notice states that the agreement with
M/s. Prodirve Automation Technology (Europe) Ltd. in terms of para 5.1 at page 19 (Appendix 2 Terms
and Conditions) of the agreement speaks of the price of contract payable was net of taxes and taxes if
any payable in addition to the price of contract was payable by the payer thereon as price of the contract
and such factual aspect remaining unrebutted by appellant clearly establishes that tax payable in India
was to form part of contract price. Thus consideration charged for the service provided shall include
income tax deducted at source as per terms of contract and is in accord with Section 66A read with Rule
7(1) of the Service Tax (Determination of Value) Rules 2006 for the reason that net price of contract
agreed to be paid to foreign consultant was to include income deducted at source thereon to be price
also. Thus the tax demand on the assessable value comprising the consideration inclusive of income tax
deducted at source relating to the period (9.4.2006 to September 2007) which was agreed to be price of
the contract sustains.
19. The appellant in para 22 of appeal memorandum stated that in reply to Show Cause Notice dated
19.11.2007 it was pleaded that the notice was barred by limitation upto 30.9.2006. There is no quarrel to
such proposition since law was not in force prior to 18.4.2006 to bring the appellant to the purview of
service tax on the disputed issue following apex court decision inNational Shipowners Association case
(supra). Therefore, the appellant shall be liable to tax for the normal period covered by the Show Cause
Notice and tax demand with interest if any shall be computable for such period and the adjudication order
gets suitably modified to this extent.
20. One of the grounds of Appeal is to grant cum-tax benefit. The Authority may consider such grounds at
the time of raising modified demand in accordance with law.
21. So far as levy of penalty under Section 78 is concerned, considering the difficulty in understanding the
law applicable at inception and date of incidence to taxability, it would be proper to waive the penalty
imposed under that Section.
22. In the light of the aforesaid discussions it is ordered:(1) That there shall not be levy of service tax on the engineering consultancy services availed from
foreign consultant abroad prior to 18.4.2006.
(2) There shall be levy of service tax at the applicable rate for the period 19.4.2006 to 30.9.2007 on the
gross amount of consideration inclusive of income tax deducted at source involved in availing engineering
consultancy service availed under Section 66A of the Act.
(3) Adjudication order gets modified by the extent indicated in (1) and (2) above.
(4) Cum tax benefit if any admissible shall be granted in accordance with law.
(5) There shall not be penalty under Section 78 of Finance Act, 1994.